Aetna 2012 Annual Report Download - page 60

Annual Report- Page 54
geographic concentrations in our core Insured membership (including strategies to increase membership for
targeted product types and customers, such as commercial or public sector business) could materially
adversely affect our operating results.
Competitive factors (including our customers' flexibility in moving between us and our competitors), the current
adverse and uncertain economic environment and ongoing changes in the health and related benefits industry
(including merger and acquisition and strategic alliance activity in the industry) and Health Care Reform, limit our
ability to set premium rates and/or create pressure to contain premium price increases despite being faced with
increasing health care and other benefit costs. Our customer contracts are generally for a period of one year and
subject to renegotiation, and our Medicare, Medicaid and SCHIP products are subject to termination without cause,
periodic re-bid, rate adjustment and program redesign, as customers seek to contain their benefit costs, particularly
in a slow economy. Customers may elect to self-insure or to reduce benefits in order to limit increases in their
benefit costs. Such elections may result in reduced membership in our more profitable Insured products and/or
lower premiums for our Insured products, although such elections also may reduce our health care and other benefit
costs. Alternatively, our customers may purchase different types of products from us that are less profitable, or
move to a competitor to obtain more favorable pricing. Our membership is also concentrated in certain geographic
areas in the U.S., and unfavorable changes in health care or other benefit costs or reimbursement rates or increased
competition in those geographic areas could therefore have a disproportionately adverse effect on our operating
results. Among other factors, we compete for members on the basis of overall cost, hospital and other medical
provider discounts, plan design, customer service, quality and sufficiency of medical provider networks, quality of
medical management programs and the tools we provide to members and customers. In addition to competitive
pressures affecting our ability to obtain new customers or retain existing customers, our membership has been and
may continue to be affected by reductions in workforce by existing customers due to unfavorable general economic
conditions, especially in the U.S. geographies and industries where our membership is concentrated. Failure to
profitably grow and diversify our membership geographically, by product type or by customer industry may
adversely affect our revenue and operating results.
We are dependent on our ability to manage, engage and retain a very large and diverse workforce. In order
to successfully operate and grow our business, we must transform our culture and continue to improve
employee engagement, recruitment, retention and development. Managing executive succession and key
talent retention, recruitment and development is critical to our success given the current environment.
Our products and services and our operations require a large number of employees, and a significant number of
employees are expected to join us during 2013 upon the closing of the proposed Coventry acquisition. Our success
is dependent on our ability to transform our culture, engage our employees and inspire leadership to be open to
change and innovation and to maintain consumer-focus when delivering services to our customers. Our business
would be adversely affected if we fail to adequately plan for succession of our executives and senior management
and/or effectively recruit, integrate, retain and develop key talent, particularly given the current environment.
While we have succession plans in place and we have employment arrangements with a limited number of key
executives, these do not guarantee that the services of these or suitable successor executives will continue to be
available to us. In addition, as we expand internationally, we face the added challenge of recruiting, integrating,
educating, managing, retaining and developing a more culturally diverse workforce. The impact of the external
environment or other factors on employee morale and engagement could also significantly impact the success of our
company.
Premium rate increases are subject to increasing regulatory review and limitations. We may not be able to
obtain adequate premium rate increases. This would have an adverse effect on our revenues, medical benefit
ratios and operating results, and could magnify the adverse impact of increases in health care and other
benefit costs that exceed our projections and of Health Care Reform assessments, fees and taxes.
Premium rates generally must be filed with state insurance regulators and are subject to their approval, either before
or after rates take effect. Health Care Reform generally requires a review by HHS in conjunction with state
regulators of premium rate increases of 10% or more (or another state-specific threshold set starting in September
2012 by states with adequate processes as determined by HHS). Regulators or legislatures in a number of states
have implemented or are considering limits on premium rate increases, either enforcing existing legal requirements
more stringently or proposing different regulatory standards. Premium rate review legislation (ranging from new or